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On June 11, the Office of Information and Regulatory Affairs released the CFPB’s spring 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau is “currently pursuing under interim leadership pending the appointment and confirmation of a permanent Director.” Any changes made by the new permanent director will be reflected in the fall 2021 rulemaking agenda. Additionally, the Bureau indicates that it plans to continue to focus resources on actions addressing the adverse impacts to consumers due to the ongoing Covid-19 pandemic, and highlighted an interim final rule issued in April that addresses certain debt collector conduct associated with the CDC’s temporary eviction moratorium order (covered by InfoBytes here). The Bureau will also continue to take concrete steps toward furthering the agency’s “commitment to promoting racial and economic equity.”
Key rulemaking initiatives include:
- Small Business Rulemaking. Last September, the Bureau released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration, convened an SBREFA panel last October, and released the panel’s final report last December (covered by InfoBytes here and here). The Bureau reports that it anticipates releasing a notice of proposed rulemaking (NPRM) for the Section 1071 regulations this September to “facilitate enforcement of fair lending laws as well as enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”
- Consumer Access to Financial Records. The Bureau notes that it is considering rulemaking to implement section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued last fall regarding consumer data access (covered by InfoBytes here).
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, [ ] avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for December.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued an NPRM in June 2020 to amend Regulation Z to address the sunset of LIBOR, and to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer products. A final rule is expected in January 2022.
- Reviewing Existing Regulations. The Bureau notes in its announcement that while it will conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), it will no longer pursue two HMDA proposed rulemakings previously listed in earlier agendas related to the reporting of HMDA data points and public disclosure of HMDA data. Additionally, the Bureau states that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 and plans to publish any resulting changes in the fall 2021 agenda.
The Bureau’s announcement also highlights several completed rulemaking items, including (i) a final rule that formally extended the mandatory compliance date of the General Qualified Mortgage final rule to October 1, 2022 (covered by InfoBytes here); (ii) proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions under RESPA/Regulation X (covered by a Buckley Special Alert) (the Bureau anticipates issuing a final rule before June 30, when the federal foreclosure moratoria are set to expire); and (iii) a proposed rule (covered by InfoBytes here), which would extend the effective date of two final debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic (the Bureau plans to issue a final rule in June on whether, and for how long, it will extend the effective date once it reviews comments).
On May 28, the Hawaii Supreme Court vacated summary judgment in favor of a national bank, ruling that the “bank seeking to foreclose on a mortgage and note” did not meet its “burden of establishing that the borrower defaulted under the terms of the agreements.” The bank sought a judicial foreclosure of the borrower’s residence and submitted a ledger in order to prove the borrower had defaulted. However, the state’s Supreme Court determined that the Intermediate Court of Appeals erred in affirming the lower court’s order because the bank failed to explain how to read the entries. According to the Supreme Court, the ledger was “ambiguous” and presented “genuine issues of material fact” as to whether the bank was entitled to bill the borrower for lender-placed insurance and whether the borrower “actually owed the amounts that forced her into the alleged default” when the bank “apparently redirected her payments to cover the cost of lender-placed insurance.”
On June 4, the CFPB released eight new FAQs regarding compliance with the Electronic Fund Transfer Act (EFTA) and Regulation E. Highlights from the FAQs are listed below:
- As explained by the commentary to Regulation E, unauthorized electronic funds transfers (EFTs) include transfers by a person who obtained an access device from a consumer through fraud or robbery. “Similarly, when a consumer is fraudulently induced into sharing account access information with a third party, and a third party uses that information to make an EFT from the consumer’s account, the transfer is an unauthorized EFT under Regulation E.”
- “If a third party fraudulently induces a consumer to share account access information,” subsequent EFTs initiated using that information are not excluded from the definition of an unauthorized EFT under the exclusion for transfers initiated by persons who “furnished the access device to the consumer’s account by the consumer.”
- Financial institutions cannot consider a consumer’s negligence when determining liability for unauthorized EFTs under Regulation E because it establishes “the conditions in which consumers may be held liable for unauthorized transfers, and its commentary expressly states that negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E.”
- Financial institutions cannot rely on a consumer agreement that “includes a provision that modifies or waives certain protections granted by Regulation E, such as waiving Regulation E liability protections if a consumer has shared account information with a third party” when determining whether the EFT was unauthorized and what liability provisions apply. The EFTA “includes an anti-waiver provision stating that ‘[n]o writing or other agreement between a consumer and any other person may contain any provision which constitutes a waiver of any right conferred or cause of action created by [EFTA].’”
- Less protective rules do not change a financial institution’s Regulation E obligations, even if private network rules and other agreements provide additional consumer protections beyond Regulation E.
- “A financial institution must begin its investigation promptly upon receipt of an oral or written notice of error and may not delay initiating or completing an investigation pending receipt of information from the consumer.”
- “If a consumer has provided timely notice of an error under 12 CFR § 1005.11(b)(1) and the financial institution determines that the error was an unauthorized” EFT, Regulation E’s liability protections under Section 1005.6 would apply. “Depending on the circumstances regarding the unauthorized EFT and the timing of the reporting, a consumer may or may not have some liability for the unauthorized EFT.”
On June 1, the FDIC issued FIL-38-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of West Virginia affected by severe storms. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
On May 24, the FTC announced that it will be releasing closing letters—letters from FTC staff telling a company or individual that the FTC is closing its investigation into their conduct—which “may supplement law enforcement with other methods, including consumer education, business guidance, warning letters, national workshops, reports.” However, the text in the letters make it clear that the “FTC reserves the right to take further action as the public interest may require.” The FTC also notes that although the closing letters “serve a narrow purpose,” they often include a guide that can help other companies with their own compliance efforts.
On May 27, the CFPB announced a settlement with a Florida-based lender and the CEO of the company (collectively, “defendants”) to resolve allegations that the defendants violated the Consumer Financial Protection Act by misrepresenting the risks associated with their deposit product and the annual percentage rate (APR) associated with their consumer loans. The settlement resolves a complaint against the defendants filed in the U.S. District Court for the Southern District of Florida in November 2020 (covered by InfoBytes here). The CFPB alleged that the company took deposits from consumers to fund loans, claiming their deposits would have a fixed and guaranteed 15 percent annual percentage yield and would be deposited at FDIC-insured institutions. However, according to the complaint, the representations were false in that the funds were not held in FDIC-insured accounts and the rate of return was not guaranteed. The CFPB also alleged that most deposited funds were used to fund short-term, high-interest personal loans that were deceptively marketed as having an APR of 440 percent when the actual APRs are alleged to have been more than 900 percent, well in excess of the rate permitted under Florida’s criminal-usury law, causing the loans to be uncollectable and creating risk that obligations could not be met to depositors who sought to withdraw their deposited funds. The complaint claimed that the defendants had loaned a total of more than $30 million to consumers since 2017.
Under the terms of the stipulated order, the defendants are (i) subject to a judgment for monetary relief and damages for the full amount defendants received from consumers who purchased their financial products and services, around $1 million, plus all interest due to consumers under the terms of the advertised products and services purchased; and (ii) required to pay a $100,000 civil money penalty. The order also permanently bans the defendants from engaging in deposit-taking activity and from making deceptive statements to consumers.
On May 27, the CFPB released a report providing insights into manufactured housing financing, which is a source of lending for millions of manufactured housing homeowners. The report utilizes new information about manufactured housing that was added in 2018 to the list of HMDA data. The report also examines the differences between mortgage loans for site-built homes, mortgage loans for manufactured homes, and chattel loans for manufactured homes. The report found, among other things: (i) about 42 percent of manufactured home purchase loans are “chattel” loans, which are secured by the home but not the land; (ii) about 70 percent of the time, homeowners seeking a loan on a site-built home are approved, but about 30 percent of manufactured home loan applications are approved; (iii) the top five lenders account for over 40 percent of manufactured housing purchase loans and nearly 75 percent of chattel lending; and (iv) Hispanic, Black and African American, American Indian and Alaska Native, and elderly borrowers “are more likely than other consumers to take out chattel loans, even after controlling for land ownership.” The report also pointed out that “compared to mortgages for site-built homes, manufactured homes mortgages tend to have smaller loan amounts, higher interest rates, fewer refinances, and less of a secondary market, patterns that are even more acute for chattel loans.”
On June 3, the Department of Veterans Affairs (VA) issued changes updating Circular 26-21-07 to address loan repayment relief for borrowers affected by Covid-19. The circular provides servicers with information regarding home retention options and foreclosure alternatives to use to assist borrowers affected by the pandemic. The guidance stems from the extended duration of the pandemic and developments in the VA’s program. According to the changes, “servicers should not require a borrower to make a lump sum payment to bring the loan current.” Additionally, the VA will allow “for Disaster Extend Modifications to extend the loan’s original maturity date for up to 18 months, in cases where the loan is modified not later than the date that is 18 months after the date on which the COVID-19 national emergency ends.” The circular is effective until April 1, 2022.
On May 27, the House Financial Services Committee held a hearing entitled “Holding Megabanks Accountable: An Update on Banking Practices, Programs and Policies.” During the hearing, chief executive officers from the six largest U.S. banks testified on their banks’ activities during the Covid-19 pandemic, as well as various issues related to safety and soundness, consumer protection, diversity and inclusion, risk management, compensation, climate risk, and the use of emerging technology. Several proposed bills containing provisions that would impact the banks if enacted were also discussed, including those that would (i) require the banks to publicly disclose and pay damages to harmed consumers within a short timeframe when more than 50,000 consumers are affected or potential remediation exceeds $10 million; and (ii) require federal regulators to design strategic plans to hold the banks accountable for compliance failures resulting in extensive consumer harm. The Committee’s memorandum focused on several areas discussed during the hearing including the following:
- Pandemic response. The Committee expressed concerns over allegations that some of the banks prioritized Paycheck Protection Program (PPP) loans for wealthier clients over smaller borrowers, including small and minority-owned businesses, and that certain banks allegedly inappropriately charged overdraft fees.
- Banking deserts. The Committee reported that the number of branches in the U.S. is down from ten years ago, noting that the existence of communities lacking adequate access to a bank branch makes it more difficult to reduce the number of unbanked and underbanked consumers.
- Diversity and inclusion. The Committee suggested that lack of diversity within the banks continues to be an issue, pointing out that shareholder proposals at certain banks for racial equality audits were not supported by the banks. However, the Committee noted that all six banks made commitments in 2020 to invest millions into supporting minority depository institutions and community development financial institutions to support communities of color during the pandemic.
- Fintech. The Committee discussed the increased use of artificial intelligence and machine learning to assist in digital banking, customer relations, fraud detection, and underwriting. Some of the banks, the Committee noted, have “acknowledged the competitive threat of fintech’s growth” and have asked regulators to “create a level playing field.” With respect to cryptocurrency custody services and the use of distributed ledger technology to perform payment activities, the Committee observed that while the banks do not yet provide these services, a few of them recently announced that they are considering the idea of offering funds to select investors allowing bitcoin ownership, while others may offer bitcoin investments in the near future.
Earlier in the week, the same CEOs discussed pandemic responses during the Senate Banking Committee’s hearing on the “Annual Oversight of Wall Street Firms.” The CEOs addressed challenges with building out digital platforms to facilitate PPP loan applications and forgiveness programs, as well as challenges to distributing funds quickly and in a manner that would prevent fraud from entering the system. The CEOs also emphasized their continued commitment to helping borrowers still facing financial hardships as federal foreclosure and eviction moratoriums begin to expire. One CEO noted during the hearing that his bank intends to continue to assist borrowers find loan modifications “irrespective of the deadline passing.”
On May 27, the CFPB published a blog post discussing the Bureau’s 5th Research Conference held earlier in the month. During the conference, academics and policymakers presented research covering several consumer finance areas, addressing topics including (i) racial disparities in homeownership, bankruptcy outcomes, and access to credit; (ii) the need to improve the industry’s understanding of the Community Reinvestment Act; (iii) the evolution of credit scores across economic cycles; (iv) the impact of the Covid-19 pandemic on consumer finances and credit markets; (v) credit use and spending patterns among the economically vulnerable—one of the areas where the Bureau hopes to expand its research and policy agenda; and (vi) disclosures and consumer decision-making. Recorded videos of the event as well as links to most of the research papers are available on the blog post.
- APPROVED Webcast: CFL license transition to NMLS
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting